Starz Gets Green Light in Lawsuit Over MGM's Breach of Exclusivity

Bill and Ted's Excellent Adventure (1989) - Photofest-EMBED 5 -  2019
Orion/Photofest

'Bill and Ted's Excellent Adventure'

What's the Hollywood equivalent of going steady? Whatever the answer, in Starz' eyes, MGM is cheating. And on Wednesday, a California judge ruled that Starz didn't wait too long to bring claims over an alleged failure to honor an exclusivity deal.

According to the lawsuit that Starz filed last May, it got the exclusive right in 2013 to exhibit 421 movies and television episodes that MGM controls. MGM's library includes recent James Bond movies as well as Bill & Ted's Excellent Adventure, Bull Durham, Rain Man, Thelma & Louise, Mad Max, The Terminator and many others. The agreement included a provision whereby MGM wouldn't license others. Nevertheless, MGM made a similar exclusivity deal with another exhibitor two years later. Finally, in August 2019, a Starz employee discovered Bill & Ted's on Amazon Prime. Thus came discussions and eventually the lawsuit.

MGM's first move in the case has been to contend that everything was out in the open, and that a "sophisticated" company like Starz had sat on its hands too long over dated sins.

Ruling on a motion to dismiss, U.S. District Court Judge Dolly Gee looks at recent case law in the copyright arena about timeliness. That includes Petrella v. MGM, the big case a few years ago over Raging Bull that went to the Supreme Court. While the justices of the high court ruled there that a laches defense (prejudiced delay) couldn't bar damages claims brought within the applicable three-year statute of limitations, there's been subsequent debate over whether plaintiffs can recover for infringements occurring prior to three years if they only belatedly discover injuries. Earlier this year, the 2nd Circuit Court of Appeals in Sohm v. Scholastic ruled that newly discovered injuries aren't time-barred but relief was limited to the three-year lookback window.

"That brings us to this case," writes Gee. "MGM argues essentially for the Sohm framework, insisting that while the discovery rule remains good law, Petrella prevents Starz from recovering for any of MGM’s infringements that occurred more than three years before the operative date of the Complaint, regardless of when Starz discovered or reasonably should have discovered them. Starz counters that any language in Petrella suggesting a strict three-year damages bar is dicta and should not be interpreted to 'eviscerate' the well-established discovery rule."

Gee largely sides with Starz here, potentially setting up a circuit split that may one day be addressed by the Supreme Court.

"[T]he best read of Petrella is that it did not change any law in the Ninth Circuit pertaining to the discovery rule and the three-year damages bar," she writes. "It merely reaffirmed the rolling approach’s 'general' bar to recovery for infringements outside the three-year period, while letting stand the Ninth Circuit’s exception for the discovery rule... In sum, absent a definitive statement from the Ninth Circuit or the Supreme Court to the contrary, this Court will continue to apply the discovery rule as an exception to the three-year damages bar imposed by Section 507(b). MGM’s infringements occurring more than three years before March 24, 2020 are not per se barred from recovery if Starz did not discover them and its failure to discover them was reasonable under the circumstances."

Judge Gee then tackles a natural follow-up —  the reasonableness of Starz' discovery efforts.

"Taking all the facts in the Complaint as true, should Starz reasonably have known about MGM’s exclusivity breaches prior to its fortuitous discovery of Bill and Ted’s Excellent Adventure on Amazon in August 2019?" asks Gee rhetorically. "The answer is no. Although a copyright holder has a 'duty of diligence' to investigate potential infringements, 'inquiry notice must be triggered by some event or series of events that comes to the attention of the aggrieved party.' No facts are alleged that would give Starz reason to suspect that MGM had breached its exclusivity obligations. When Starz did detect smoke, in the form of Bill and Ted’s Excellent Adventure, it quickly discovered the fire and promptly sued for all 340 infringements. The duty of diligence does not create a duty to continuously monitor a licensor to ensure compliance with its obligations, absent any reason to otherwise suspect a breach. The law does not inject such paranoia into the licensor-licensee relationship.”

Here's the full opinion, which also explains why Starz' contract claims are good as well.